| Panipat Jalandhar NH-1 Tollway Private Limited | ||||
| Rating continues on 'Watch Negative' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings on the long-term bank facility of Panipat Jalandhar NH-1 Tollway Private Limited (Panipat-Jalandhar) remains on ‘Rating Watch with Negative Implications’.
On March 5, 2021, the National Highways Authority of India (NHAI; rated ‘CRISIL AAA/Stable’) issued a termination notice to Panipat-Jalandhar. The company filed a petition and on March 12, 2021 received a stay order against the termination notice from the Delhi High Court.
CRISIL Ratings on March 11, 2021 had downgraded its rating on the long-term bank facility of Panipat-Jalandhar to ‘CRISIL B-/Watch with Negative Implications’ from ‘CRISIL BB-/ Watch with Negative Implications’.
The rating action was on account of the weakening in liquidity of the company given lower-than-expected toll collection. Toll collections were impacted significantly because of the protest by Indian farmers. Toll collections were negligible in January 2021 and nil in February 2021. Higher-than-expected decline in toll collection this fiscal is expected to weaken the project’s liquidity and project debt service coverage ratio (DSCR). The project had liquidity of around Rs 235 crore in the escrow account as of November 2020, which reduced to Rs 135 crore in February 2021. The said liquidity would cover next three months of debt obligation in case toll collections do not resume.
The rating reflects good traffic potential supported by the strategic location of the Panipat-Jalandhar project and expected continued support of the sponsor, Roadis. These strengths are partially offset by weak debt protection metrics, susceptibility to volatility in traffic volume and risk related to non-extension of concession agreement. |
Key Rating Drivers & Detailed Description Strengths:
The Panipat-Jalandhar road stretch on National Highway (NH)-1 provides connectivity to the northern states. NH-1 is one of the largest projects of NHAI and connects several tourist and industrial hubs and prominent cities/towns in Punjab and Haryana (Karnal, Ambala, Ludhiana and Kurukshetra), ensuring strong economic potential for the road stretch. Further, given the project stretch was for widening of four lanes to six, it has been tolled from the first day of construction, thereby mitigating the risk of resistance to toll charges. The concession agreement also provides for indexed escalation (linked to the wholesale price index) of toll rate for the entire tenure of the concession. Toll revenue saw modest growth of 6.5% in fiscal 2020 to Rs 634 crore (against 16% in fiscal 2019) because of the Covid-19 induced lockdowns. The company should register moderate growth of 9-10% in toll revenue over the medium term post fiscal 2022, backed by high traffic potential on the road stretch.
The continued technical, managerial and financial support from Roadis, which has a 61% shareholding in the company, aids the company. Roadis is owned by one of the largest Canadian pension fund managers, PSP Investments (Public Sector Pension Investment Board; rated ‘AAA/Stable/A1+’ by S&P Global Ratings). The sponsors have infused funds in the projects and have articulated that any further support needed will be extended.
Weaknesses:
Traffic was affected by the Covid-19 induced lockdowns in the first half of fiscal 2021 and by farmer protests in the second half. Following the commencement of tolling from April 20, 2020, collections recovered and in September reached 97% of the toll collected in the corresponding period of the previous year. However, collections were again impacted by the ongoing farmer protests since October 2020. Collection was negligible in January 2021 and nil in February 2021. Higher-than-expected decline in toll collection this fiscal is likely to further weaken the project debt service coverage ratio (DSCR). Time taken to resolve the farmer protests by the government will remain a key monitorable.
Toll income is the company’s only source of revenue and, hence, any volatility in collection because of factors such as toll leakage, lack of timely increase in rates, seasonal variations in vehicular traffic and economic downturns could adversely impact the cash flow. Further, any change in government policy, such as demonetisation in November 2016 and—more recently—the nation-wide lockdown imposed to contain Covid-19, can impact cash flow and debt protection metrics. Toll collection, which gradually recovered to pre-Covid-19 levels in September 2020 was impacted yet again from October because of farmer protests. Delay in resolution of this issue could deteriorate toll collections and, thereby, impact the debt protection metrics.
Original concession agreement is slated to expire on May 10, 2024. However, the company has applied for extension of concession agreement till May 10, 2027, on account of shortfall in traffic, in-line with the concession agreement clause. Traffic study was conducted on January 1, 2018, and actual traffic is lower by 15.47%. This means the company is eligible for 3.48 years of extension in concession agreement subject to limit of 3 years. While as per the concession agreement the extension in concession period is deemed extension, NHAI however can raise dispute relating to actual traffic, which will have to be resolved as per the Dispute Resolution Procedure. Further, the repayment schedule is till March 2027, any change in the understanding of the extension of concession period will be a rating sensitivity factor. |
Liquidity: Poor The company has annual debt obligation of Rs 350-400 crore each in fiscals 2021 and 2022. Toll collection this fiscal has been impacted by the Covid-19 induced lockdowns and the farmer protests, affecting the project’s debt-servicing ability. Cash balance maintained by the company came down to around Rs 135 crore as on February 28, 2021, in the TRA, which would be sufficient to cover the next three months’ debt obligation. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 2008, Panipat-Jalandhar is a special-purpose vehicle promoted by Roadis (formerly the Isolux Corsan group) and Soma Enterprises Ltd in the ratio of 61:39. The company has been awarded the rights to widen the four-lane Panipat–Jalandhar section of NH-1 to six lanes. It has entered into a concession agreement with NHAI for the execution, operation and maintenance of the project on a build-operate-transfer basis.
The concession period is for 15 years and includes construction activity of 30 months. The project was delayed by 45 months and achieved provisional completion certificate on September 30, 2015. The company has applied for extension of the concession period for three more years, in-line with the terms in the concession agreement. The revised project cost of Rs 5,690 crore was funded in a debt-equity ratio of 64:36.
The company has filed an arbitration claim against NHAI for about Rs 7,035 crore (as on December 31, 2016) and is expected to receive net arbitration claim money (after adjusting for NHAI claims) of about Rs 3,000 crore, as per a consultant report appointed by the lead bank. This would be used towards meeting the pending premium. |
Key Financial Indicators
*includes construction revenue of Rs 57 crore in fiscal 2020 |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
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